For many entrepreneurs in Canada, business is a game of numbers. Profits, losses, liabilities, assets, and the like, are measured and checked to ensure their business is on track—for good reason. A business’s financial situation is paramount to its success.
That’s why understanding business credit scores in Canada is so important. Without understanding how lenders potentially view your business before offering you financing opportunities, your business could be stuck in lending limbo. Besides, as an owner, you should keep tabs on all parts of your business.
To help you navigate the complexities of business credit in Canada, here’s an overview of business credit scores for 2023.
What is a business credit score?
Put simply, a business credit score is a number assigned to a business based on its history such as how timely their debt repayments have been, how much the business currently owes to creditors, your company’s industry, and other factors. Though business credit scores are similar to personal credit scores for consumers, there are some differences.
Multiple credit scores
In Canada, three major credit bureaus monitor business credit: Equifax, TransUnion, and Dun & Bradstreet. Each of these companies uses different (though similar) metrics which result in three potentially different scores, depending on where your business credit report is coming from.
In addition, credit bureaus may also use different numbers for their scores (e.g. 1-100) that vary substantially from personal credit scores that range from 300-900.
While your personal credit score is safeguarded by consumer protection regulations that require your consent, business credit scores (or reports) are accessible to anyone—so long as they pay the applicable fee if required. For example, TransUnion offers a business credit report that analyzes multiple facets of a business to determine its overall lending risk to interested parties. Creditsafe, a company “powered by Equifax” allows any member of the public to claim a free business credit report as part of their free trial.
What is a business credit report/profile?
In truth, thinking that your business has a simple number to account for how trustworthy it is with money isn’t a holistic enough picture. Businesses in Canada are given a business credit report or profile as part of their risk assessment by lenders and other parties. This report includes a business credit score, but also many other data points, as follows. Keep in mind that the data given below may vary depending on where you order your business credit report from and is not exhaustive.
General business information
This section outlines identifying information about your business including its name, number of employees, address, phone number, and volume of sales.
Business score summary
Sometimes using visual graphs or charts, this section summarizes your business’s financial risk to lenders or suppliers. This risk factor is measured by payment timeliness with other businesses, your track record of paying accounts, and how likely it is your business could become delinquent.
Highlights and alerts
Report readers are shown current business credit accounts you own, as well as any late payments, legal items, judgments, and/or bounced cheques.
This subsection outlines the bank accounts your business currently has open, their type, and any balances. It also shows any loans it may have and amounts past due.
To provide context on the business’s data, information is also given on the industry the business operates in.
How is my business credit score calculated?
Though each credit bureau will look at various pieces of data to determine your business credit score, some of the most common qualities they look for are:
- Collections info
- Payment history
- Lawsuits, current liens, and legal judgments
- How well the business utilizes credit
- Public records information
- Company size
- Age of the business
- Industry-specific risk
To be more specific, Equifax lays out four key metrics it generates when creating a business credit report.
- Credit Information (CI): This number between 0 and 70 represents a business’s likelihood to pay back lenders based on its credit history. The higher the number the better.
- Payment Index (PI): This number—ranging from 0 to 100— relates to how a business manages its payments and its general payment habits. The closer this score is to zero, the more likely the business in question will pay its dues.
- Commercial Delinquency Score (CDI): Related to a company’s PI, the delinquency score indicates how probable it is that a business may not pay its outstanding accounts and become insolvent soon thereafter, based on bounced cheques and general outstanding account trends, for instance. This number ranges from 101 to 662.
- Business Failure Risk Score (BFRS): Different from going delinquent, the BFRS shows the likelihood of a business shutting its doors within the next year, based on suits or judgments, for example. This final number ranges from 1001 to 1772. The higher the score, the less probability of failure for the business.
Where can I view my business credit score?
As mentioned before, there are a number of different credit bureaus you can access to review your business credit score—though not all of them will offer it for free.
Equifax, for example, offers a business credit report that extensively breaks down nearly every facet of your business’s financial situation using the variables noted above. It comes with a moderate fee of $99.00.
Another bureau in Canada, TransUnion, has a bit more “red tape” around their business credit report. Though they do offer a breakdown of what you’re getting when you receive the report, you are not able to order it immediately. You’ll need to contact them for more information first.
What does a business credit report look like?
Equifax offers a free business credit summary to review to see what kind of format your credit report will come in. Below are some screenshots of the most relevant sections. The full example summary report can be found on their website.
How are business credit and personal credit related?
Though it may be tempting to think that a bank or other lender only looks at your business credit report when determining financing eligibility, this is typically not the case for small businesses in Canada. Personal credit almost always comes into the picture, in a number of different ways.
For one, many institutions require personal guarantees before agreeing to a small/medium business loan. A personal guarantee is a form of unsecured debt that essentially puts the business owner personally on the hook for paying back the business’ debt if things go wrong.
These are typically required by banks and other lenders due to the nature of doing business with small or new entrepreneurs—they may carry substantial risk. For example, a BNN Bloomberg article noted that Canada had 3,402 business insolvencies in 2022. That number increased from around 2,500 insolvencies in 2021. If lenders are looking to put a business owner personally on the hook for a loan, there’s a decent chance they will review that individual’s credit score.
Second, some institutions require a personal credit check for any small business loans. For instance, TD Bank offers a Small Business Loan for Canadian entrepreneurs. In order to be eligible for their program, they note that “Subject to complying with TD Canada Trust lending policies and criteria including confirmation of acceptable personal credit history. (emphasis added)” Business owners that do not have a robust personal credit score could miss out on financing opportunities from certain institutions.
The takeaway? Personal credit is just as — if not more — important than building up a robust business credit profile.
What if my business credit and/or personal credit score is poor?
For entrepreneurs that have a low personal and/or business credit score, it can feel deflating. You wonder if banks or other lenders will give you the injection of capital you need to succeed—or get your dream going. Thankfully, there are some remedial steps you can take to improve your business and personal credit scores. For the sake of space, and given that we have covered how to improve your personal credit elsewhere, we’ll focus on boosting your business credit profile.
Split your finances
For starters, regardless of the age of your business or its legal type, you should be dividing your funds between personal and business accounts. This allows your personal finances to accurately represent your personal fund usage habits, and your business finances to accurately represent your business financial habits. Having an accurate display of your financial prudence is the first step.
Get a business credit card
Just as your personal credit score builds up the more you properly handle credit, utilizing a business credit card successfully (i.e. paying it off on time, using it regularly) will improve your business credit score. Regardless if you are a new business owner or not, Canada has a myriad of potential business credit cards to compare and choose from. But, what if you’re trying to build up your business credit from a bad starting position?
Apply for a prepaid business credit card
If you’re an entrepreneur with a low personal credit score struggling to improve your financial situation, a prepaid business credit card — such as the Vault Card — could be a viable option. Prepaid business credit cards allow you to funnel funds into the card before making any purchases. This ensures that even if you’re a business owner trying to kick poor spending habits, you are only spending money that you have — not funds you’ve borrowed.
Business Credit Score in Canada: The Bottom line
Though a business credit score may sound like the be-all-end-all for how a business is viewed by potential lenders and banks, this is not the case. A successful entrepreneur will understand the crucial balance between managing their personal credit score and their business credit score. When both of those numbers are at their peak, the financing opportunities that open up to you allow your business to potentially reach new financial milestones.
FAQs About Business Credit Scores in Canada
A business credit card affects both your business and personal credit scores. Because many business credit cards contain “joint and several liability” clauses in their fine print, both the owner of the business and the business itself may be held liable for outstanding balances. Thus, both credit types can be negatively, or positively, affected.
You can check your business credit score through either TransUnion, Equifax, or Dun & Bradstreet. Note that a full business credit report will likely come with a fee. Business credit reports that come with no cost may not contain all of the relevant information you are looking for.
Yes. All businesses in Canada have what is called a business credit profile, or report. Put succinctly, this measures your business’s overall financial prudence, risk, and other factors, to highlight the potential risk lenders face when deciding to finance your business.
Business credit scores are measured on a number of different factors such as collections information, payment history, lawsuits, current liens, public records information, company size, age of the business, and industry-specific risk factors. From assessing these variables, your business is given a credit score (or multiple scores) which outlines its overall risk to potential lenders.
You can improve your business credit score largely by following the same principles to build your personal credit: manage your credit well, pay your debts on time, do not carry a balance on your business credit card, and so on. Businesses that struggle with traditional credit cards can apply for a prepaid credit card, such as the Float Card, that allows them to load a card with funds they already have—not funds borrowed from a company.
Generally speaking, yes, all businesses have a credit score (or at least a credit profile).
The credit bureaus that track business credit scores in Canada are Equifax, TransUnion, and Dun & Bradstreet. Note that Equifax and TransUnion are the two most prominent agencies out of the three listed.
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